Download The Marketing Plan

Entrepreneurship and Small Business Management
MNE3701
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Study Unit 2
The Marketing Plan
Table of Contents
2.1
WHAT IS SMALL BUSINESS MARKETING? ............................................................................................................. 1
2.1.1
Marketing philosophies make a difference .................................................................................................. 1
2.1.2
A consumer orientation: the right choice ..................................................................................................... 2
2.2
THE FORMAL MARKETING PLAN ........................................................................................................................... 3
2.2.1
Market analysis ............................................................................................................................................. 3
2.2.2
The competition ............................................................................................................................................ 3
2.2.3
Marketing strategy ........................................................................................................................................ 3
2.3
MARKETING RESEARCH FOR THE SMALL BUSINESS ............................................................................................. 4
2.3.1
The nature of marketing research ................................................................................................................ 4
2.3.2
Steps in the marketing research process ...................................................................................................... 5
2.4
UNDERSTANDING POTENTIAL TARGET MARKETS ................................................................................................ 7
2.4.1
Market segmentation and its variables ........................................................................................................ 7
2.4.2
Marketing strategies based on segmentation considerations...................................................................... 7
2.5
ESTIMATING MARKET POTENTIAL ........................................................................................................................ 9
2.5.1
The sales forecast.......................................................................................................................................... 9
2.5.2
Limitations to forecasting ........................................................................................................................... 10
2.5.3
The forecasting process .............................................................................................................................. 10
2.1 WHAT IS SMALL BUSINESS MARKETING?
 Definition: Those business activities that direct the creation, development and delivery of a bundle of
satisfaction from the creator to the targeted user.
o Identifying a target market
o Determining target market potential
o Preparing, communicating and delivering a bundle of satisfaction to the target market
 A marketing plan will not enable you to avoid all missteps involved in a startup situation, but it can
drastically reduce the number of errors by forcing you to think through available options.
 It may be helpful to view a product or service as having three levels:
o The core product/service: the fundamental benefit or solution sought by customers.
o The actual product/service: the basic physical product and/or service that delivers those benefits.
o The augmented product/service: the basic product and/or service plus any extra or unsolicited
benefits to the consumer that may prompt a purchase.
2.1.1
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Marketing philosophies make a difference
Three different marketing perspectives guide most small businesses:
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a) A production-oriented philosophy emphasizes the product as the single most important part of the business.
Resources are concentrated on developing the product in the most efficient manner, even if promotion,
distribution and other marketing activities are slighted.
b) A sales-oriented philosophy deemphasizes production efficiencies and customer preferences in favour of a
focus on “pushing product”. Achieving sales goals becomes the firm’s highest priority.
c) A consumer-oriented philosophy believes that everything, including production and sales, centres in the
consumer and his or her needs. All marketing efforts begin and end with the consumer.
2.1.2
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A consumer orientation: the right choice
Identifying customer needs and satisfying those needs.
Customer satisfaction IS the goal!
Not all firms adopt a consumer-orientation despite the overwhelming benefits. The following three factors
provide answers as to why:
o (1) If there is little or no competition and if demand exceeds supply, a firm is tempted to emphasize
production. Usually a short-term situation; concentrating on production to the exclusion of
marketing can lead to disaster in time.
o (2) An entrepreneur may have a strong background in production or in selling but be weak in other
areas – the owner will play to his strengths.
o (3) Some small business owners are too focused on the present – the better course of action is to
identify ways to please consumers in the long term.
A firm that adopts a consumer orientation incorporates the best of each marketing philosophy.
Marketing activities include:
o Taking the steps necessary to locate and describe potential customers – a process called market
analysis;
o Product and/or service pricing;
o Promotion; and
o Distribution.
Marketing Research
The Marketing Plan
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Market Analysis
The Competition
Marketing Strategy
o Product/Service
o Distribution
o Promotion
o Pricing
Market Segmentation
Sales Forecasting
Exhibit 2.1 - The Marketing Plan and Supporting Marketing Activities
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2.2 THE FORMAL MARKETING PLAN
2.2.1
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2.2.2
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2.2.3
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Market analysis
Describes the market the entrepreneur is targeting…
A customer profile…identifies the key demographic and psychological characteristics of the customers
considered most likely to be qualified purchasers of your products and services.
o Marketing research information, compiled from both secondary and primary data, can be used to
construct this profile.
o If the entrepreneur intends on several target markets, each segment must have a corresponding
customer profile.
A detailed discussion of the major benefits to customers provided by the new product or service should also
be included in this section of the plan.
Another major component of market analysis is the actual sales forecast.
o Usually best to include three sales forecasts covering the “most likely,” “best-case” and “worst-case”
scenarios.
o Assumptions should be minimised in forecasting.
o The forecasting method should be fully described and backed up by data whenever possible.
The competition
Existing competitors should be studied carefully  the more you know about their key management
personnel, the better you can anticipate the actions they will take.
Competitors’ strengths and weaknesses should be discussed as part of the plan
Related products and/or services currently being marketed or tested by competitors should be noted.
The entrepreneur should also assess the likelihood that any of these firms will enter the targeted market.
A SWOT analysis is a good idea at this point – it is important that the company knows what it does well
(strengths), what it doesn’t do so well (weaknesses), available market opportunities and threats from
competitors as well as from changes in the company’s operating environment.
Marketing strategy
Forms the most detailed section of the marketing plan and is subject to the closest scrutiny from potential
investors.
Marketing strategy plots the course of the marketing actions that will make or break the owner’s vision.
The marketing mix of the “4 Ps” highlights the areas that a company’s marketing strategy should address:
o (1) product decisions that will transform the basic product or service idea into a bundle of
satisfaction;
o (2) place (distribution) activities that will determine the delivery of the product to customers;
o (3) pricing decisions that will set an acceptable exchange value on the total product or service; and
o (4) promotional activities that will communicate the necessary information to target markets
The Product/Services Section:
o Includes the name of the product and/or service and the name of the business and why they were
selected.
o Any legal protection that has been obtained for the names should be described.
o It is also important to explain the logic behind the name selection. For example, an entrepreneur’s
family name, if used for certain products or services, can make a positive contribution to sales.
o The components of the total product, such as packaging should be represented by drawings.
o Customer service plans such as warranties and repair policies also need to be discussed in this
section.
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Companies obtain trademarks, patents and copyrights to protect the unique features of their
products or services…intellectual property.
Place – The Distribution Section
o Often, new ventures use established intermediaries to handle the distribution of their product. This
reduces the investment necessary for launch and helps the company get its products to customers
faster. These intermediaries need to be mentioned here.
o Any intention the new business may have of licensing its product or service should also be covered in
this section.
o Some retail ventures require fixed locations; others need mobile stores. Will the venture be Internetbased? These companies will need to rely on others in a distribution chain to get their products to
the customer.
o Will the customer get the product by regular mail or by express delivery? Will the services be
provided from the entrepreneur’s home or office, or from the location of a licensed representative?
Pricing Section
o At a minimum, the price of a product or service must cover the cost of bringing it to customers –
therefore, the pricing section must calculate both production and marketing costs.
o Forecasting methods used for analysis in this section should be consistent with those used in
preparing the market analysis section.
o Break-even computations, which indicate the points at which revenues and costs are equal, should
be included for alternative pricing.
o Competitors should be studied to determine what they are charging as an entrepreneur will usually
have to price a new product or service within a reasonable range of that of the competition.
The Promotion Section
o Describes the entrepreneur’s approach to creating customer awareness of the product or service
and explain why customers will be motivated to buy.
o Amongst the many promotional options available to the entrepreneur are personal selling and
advertising. If personal selling is appropriate, the section should outline how many salespeople will
be employed, how they will be trained and how they will be compensated. Same goes with
advertising, a list of the specific media to be employed should be included and advertising themes
should be described.
2.3 MARKETING RESEARCH FOR THE SMALL BUSINESS
 A marketing plan based on research will be stronger than a plan with intuition and personal observations as
its foundation.
 Marketing research enables entrepreneurs to supplement their business decisions with accurate
information.
2.3.1
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The nature of marketing research
Marketing research may be defined as the gathering, processing, interpreting and reporting of market
information.
When an entrepreneur decides to conduct marketing research, he should consider the following factors:
o Hiring an expert;
o The internet – an excellent resource for obtaining secondary marketing research data;
o The cost/benefit trade-offs of marketing research
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2.3.2 Steps in the marketing research process
 The typical steps in the marketing research process are:
Identifying the
informational
need
Searching for
secondary data
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Collecting
primary data
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Interpreting
the data
gathered
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Step One: Identifying the Informational Need
o Identify and define what you need to know.
o Pinpoint exactly what information you need to know. For example, an entrepreneur thinking about a
location for a restaurant may decide to conduct a survey to ascertain customers’ menu preferences
and reasons for eating out when, in fact, what he or she needs to know most is how often residents
of the target area eat out and how far they are willing to drive to eat at a restaurant.
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Step Two: Searching for Secondary Information
o Secondary data is information that has already been compiled.
o Generally secondary information is much less expensive than gathering new or primary data.
o After defining their informational needs, entrepreneurs should exhaust available sources of
secondary data before going further into the research process.
o Various sources of market data are available in South Africa:
 Statistics South Africa (Stats SA)
 The Bureau for Marketing Research (UNISA)
 Search engines
 World Wide Web
 Software programmes can help an entrepreneur research customers for his or her product
or service
o Secondary data can have the following shortcomings:
 The data may be outdated
 The units of measure in the secondary data may not fit the current problem
 The credibility of sources may be questionable
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Step Three: Collecting Primary Data
o If the secondary data are insufficient, a search for new information, or primary data, is the next step.
o Observational methods and questioning methods are two techniques used in accumulating primary
data. Observational methods avoid interpersonal contact between respondents and the researcher,
while questioning methods involve some type of interaction with respondents.
 Observational methods
 Probably the oldest form of research in existence
 E.g. mystery shopping
o Gather observational data by going into a store and looking at how items are
displayed, checking out in-store advertising and assessing other features of
the store. Also used to test employee product knowledge, sales techniques
and more. The results can be used to make important changes in store
design and merchandising, as well as to reward good employees.
 Be careful about seeing only what you want to see and drawing incorrect
conclusions about why consumers are buying your product
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 Has three main benefits – it provides useful information, is economical and avoids
potential bias.
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Questioning methods
 Surveys and experimentation are questioning methods that involve contact with
respondents.
o Surveys can be conducted by mail, telephone, the Web or personal
interview.
 Mail surveys are often used when target respondents are widely
dispersed, but they usually yield low response rates. Telephone
surveys and personal interviews yield higher response rates.
Personal interviews are very expensive and individuals are often
reluctant to grant such interviews if they think a sales pitch is
coming.
o A questionnaire is the basic instrument guiding the researcher who is
administering the survey and the respondent who is taking it. Poorly
designed questionnaires may lead to results that cause you to make bad
decisions. Here are several considerations to keep in mind when designing
and testing a questionnaire:
 Ask questions that relate directly to the issue under consideration. A
good test of relevance is to assume an answer to each question and
then ask yourself how you would use that information.
 Select the form of question, such as open-ended or multiple-choice,
that is most appropriate for the subject and the conditions of the
survey.
 Carefully consider the order of the questions. Asking questions in
the wrong sequence can produce biased answers to later questions.
 Ask the more sensitive questions near the end of the questionnaire.
Age and income, for example, are usually sensitive topics.
 Carefully select the words in each question. They should be as
simple, clear and objective as possible.
 Pre-test the questionnaire by administering it to a small sample of
respondents who are representative of the group to be surveyed.
It may not be best to conduct formal research in the following situations:
 Your company doesn’t have the resources to conduct the research properly or to implement
any findings generated from the proposed research.
 The opportunity for a new business or product introduction has passed.
 A decision to move forward has already been made.
 You can’t decide what information is needed.
 The needed information already exists.
 The cost of conducting the research outweighs the potential benefits.
Step Four: Interpreting the Data Gathered
o The collected data must now be transformed into usable information in order to make sound
business decisions.
o Methods of summarising and simplifying information for users include tables, charts and other
graphics.
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o Inexpensive computer software, such as Excel, can be used to perform statistical calculations and
generate report-quality graphics.
2.4 UNDERSTANDING POTENTIAL TARGET MARKETS
 A “market” is defined as a group of customers with purchasing power and unsatisfied needs. The term
“market” has three meanings:
o A physical location where buying and selling takes place
o The verb “to market” means the process of selling a product
o A market can be a group of customers or potential customers who have both purchasing power
and unsatisfied needs. Note carefully the three ingredients in this definition of market:
 A market must have buying units, or customers. These units may be individuals or business
entities.
 Customers in a market must have purchasing power. Those who lack money and/or credit do
not constitute a viable market because no transactions can occur.
 A market must contain buying units with unsatisfied needs. Customers will not buy unless
they are motivated to do so – and motivation can occur only when a customer recognises his
or her unsatisfied needs.
2.4.1
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2.4.2
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Market segmentation and its variables
Marketing segmentation is the process of dividing the total market for a product or service into smaller
groups with similar needs, such that each group is likely to respond favourably to a specific marketing
strategy.
In order to divide the total market into appropriate segments, an entrepreneur must consider segmentation
variables, which are parameters that distinguish one form of market behaviour from another.
o Benefit variables
 Are related to customer needs since they are used to identify segments of a market based
on the benefits sought by customers.
o Demographic variables
 These variables refer to certain characteristics that describe customers, their purchasing
power, their consumption patterns, and other factors which include age, marital status,
gender, occupation and income.
Marketing strategies based on segmentation considerations
There are several types of strategies based on market segmentation efforts. The three types discussed here
are (1) the unsegmented approach, (2) the multi-segment approach and (3) the single-segment approach.
1. The Unsegmented Approach
 When a business defines the total market as its target;
 Also known as mass marketing.
 Can sometimes be successful, but assumes that all customers desire the same basic benefit from
a product or service.
 Firm develops a single marketing mix – one combination of product, price, promotion and
distribution.
 Competitive advantage must be derived from either a cost- or a differentiation based advantage.
2. The Multi-Segment Approach
 A view of the market that recognises individual segments with different preferences, a firm is in
a better position to tailor marketing mixes to various segments.
 A firm determines that two or more market segments have the potential to be profitable and
then develops a unique marketing mix for each segment.
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3. The Single-Segment Approach
 A firm recognises that several distinct market segments exist but chooses to concentrate on
reaching only the most potentially profitable segment.
 Probably the wisest strategy for small businesses to use during initial marketing efforts as it
allows the firm to specialise and make better use of its limited resources.
 Competitive advantage is achieved through a cost- or differentiation-based strategy.
Two Men and a Truck
Product and Marketing Strategy
Product:
Local and Long-Distance Moving
Promotion:
Online and Through Social Media,
Public Relations, and Direct Mail
Media:
Mass Media by Event Organiser
Market
•Businesses
and Homes
Exhibit 7.2 - An Unsegmented Market Strategy
Dyn
Product Strategy 1
Quick Upload Times and
Dependability
Market
Segment 1
Market
Segment 2
Product Strategy 2
Online Ordering and
Checkout Process
• E-Commerce
• Advertising & Media
Market
Market
Segment 3
Segment 4
• Software-as-a-Service
(SaaS) Providers
Product Strategy 3
24/7 Software Availability
• Web 2.0
• Fast Growth
Companies
Product Strategy 4
Infrastructure as a Service
Exhibit 7.3 – A Multi-Segment Market Strategy
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Startup Professionals
Market:
Promotion:
Media:
Marketing Strategy
High-Growth Entrepreneurs
Internet and Social Network
Promotion
Online versions of National
Magazines and Newspapers
Product D
Product A
•Executive
Monitoring
•Early Stage
Startup Starter
Kit
Product C
Product B
•Develop a
Business Plan
•Incorporate a
Business
Exhibit 7.4 – A Single-Segment Market Strategy
2.5 ESTIMATING MARKET POTENTIAL
 The existence of an adequate market means that the product will serve a large enough target market to
yield high profit and sustainability. The sales forecast indicates the market’s potential to generate income on
a viable and continuous basis.
2.5.1
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The sales forecast
A sales forecast is an estimate of how much of a product or service can be sold within a given market in a
defined time period.
Can be stated in terms of currency and/or units.
It is an essential component of a marketing plan because it is critical in assessing the feasibility of a new
venture. I.e. if the market is insufficient, the business is destined for failure.
Production schedules, inventory policies and personnel decisions all start with a sales forecast.
A forecast is never perfect, and entrepreneurs should remember that it can be wrong in either direction, by
either underestimating or overestimating potential sales.
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2.5.2 Limitations to forecasting
 For a number of reasons, forecasting is used less frequently by small firms than by large firms:
o Each and every forecasting exercise is unique. For example, entrepreneurial inexperience coupled
with a new idea represents the most difficult forecasting situation.
o A small business manager may be unfamiliar with methods of quantitative analysis. Not all
forecasting must be quantitatively oriented – qualitative forecasting is often helpful and may be
sufficient, but quantitative methods have repeatedly proven their value in forecasting.
o The typical small business entrepreneur and his team know little about the forecasting process. To
overcome this deficiency, the owners of some small firms attempt to keep in touch with industry
trends through contacts with appropriate trade associations.
 Despite the difficulties, a small business entrepreneur should not neglect the forecasting task as the sales
outlook in the business plan is important in obtaining finance.
2.5.3
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The forecasting process
Sales forecasting is a multi-step process.
The sales forecast is a composite of several individual forecasts – for example, forecasts for products or
product lines, market territories or customer segments. The process involves merging these individual
forecasts properly.
The forecasting process can be characterised by two important dimensions:
o The point at which the process is started and the nature of the predicting variable.
 Depending on the starting point, the process may be designated as a breakdown process or
a build-up process. The nature of the predicting variable determines whether the forecasting
is direct or indirect.
a) The Starting Point
 The breakdown process, sometimes called the chain-ratio method, begins with a
variable that has a very large scope and systematically works down to the sales
forecast.
o Frequently used for consumer product forecasting…
o The initial variable might be a population figure for the target market;
through the use of percentages, an appropriate link is built to generate the
sales forecast.
 The build-up process calls for identifying all potential buyers in a target market’s
submarkets and then adding up the estimated demand.
o Especially helpful for industrial goods forecasting.
b) The Predicting Variable
 In direct forecasting, the simplest form of forecasting, sales is the forecasted
variable.
o Many times, however, sales cannot be predicted directly and other variables
must be used.
 Indirect forecasting takes place when surrogate variables are used to project sales.
o For example, if a firm lacks information about industry sales of baby cribs
but has data on births, the strong correlation between the two variables
allows planners to use the figures for births to help forecast industry sales
for cribs…
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